Tan Chong’s 1H earnings slump due to ‘price war’

by **Cals** Tue 26 Aug 2014, 09:23

Business & Markets 2014

Written by Gho Chee Yuan of theedgemalaysia.com

Monday, 25 August 2014 09:35

KUALA LUMPUR: Tan Chong Motor Holdings Bhd’s net profit for the second quarter ended June 30, 2014 (2QFY14) dropped 20.1% from a year ago to RM53.84 million, while revenue fell 4.65% to RM1.09 billion from RM1.14 billion previously.

According to Tan Chong, which distributes Nissan vehicles in Malaysia, the decrease in revenue and net profit was due to a price war in the automotive sector, adding that it may persist until the oversupply situation is flushed out.

For the six months ended June 30, the group’s net profit fell 37.1% to RM95.32 million, while revenue dropped 8.9% to RM2.35 billion.

Its sales unit volume also slipped 14.9% year-on-year but contract assembly unit volume went up by 124.5%, it told Bursa Malaysia in a note last Friday, without disclosing the actual number of units.

Tan Chong foresees its vehicle sales margin remaining under pressure due to higher advertising and promotional expenses to sustain its competitiveness and sales, despite the marginal pickup in total industry volume forecast this year.

“We have also taken steps to cut completely knocked-down orders, operating and capital expenditure in order to reduce costs,” it said, adding that consumer sentiment will be under constraint due to rising cost of living, subsidy rationalisation and the upcoming implementation of the goods and services tax.

Meanwhile, Tan Chong believes that the opportunity to render contract assembly services will continue, as more and more global brands appreciate the competitive advantages offered by highly-localised supply chain solutions.

It also noted that the distribution business performed weakly in 2014 and was the main factor impacting the group’s profit growth trend line.

“To ameliorate this anomaly, we plan to review our business processes and model — and ensure the necessary changes are made for improvement,” it added.

This article first appeared in The Edge Financial Daily, on August 25, 2014.